By TIOL News Service

CHENNAI, APRIL 19 2017: THE appellant is a Container Freight Station (CFS) and a custodian of goods for the purpose of import and export.

A SCN was issued by the DRI pursuant to the seizure of 30.212 metric tonnes of red sanders logs (prohibited) falsely declared as natural granite chips.

The defence taken by appellant was that the goods originally packed in the container, natural granite chips, were substituted clandestinely and without the knowledge of the appellant at the time of transportation to the port for export. Once the containers were packed and sealed, they were beyond the control or responsibility of the custodian and no liability could be fastened on it on this account. Thus, since the role of the CFS as custodian did not extend to the supervision of transportation from the CFS to the port, there was no liability with regard to any event that may transpire after the goods left the freight station. According to the appellant, transportation was the domain of custom house agent and not the custodian.

Nevertheless, an o-in-o was passed imposing a penalty of Rs 5 lakhs on the appellant u/s 114 of the Customs Act, 1962.

The CESTAT reduced the penalty to Rs.2.5 lakhs but the appellant has challenged this order in appeal before the High Court.

The High Court noted that the Appellant was declared as a Container Freight Station (CFS) in terms of Public Notice No.69/93; that a detailed set of guidelines was issued by the CBEC in Circular N0.128/1995 dealing with the appointment of custodians, movement of cargo and places accountability in respect of the goods moving from a CFS on the custodian; subsequent Circular 57/1998 further elaborated and streamlined the role of a custodian.

In the matter of the submissions made by the appellant, the High Court further observed –

+ A custodian has, as the name suggests, full custody of the goods entrusted to it from the time of storage till the time the goods are moved, arrive at the gateway port or other customs areas/equivalent and are cleared for export.

+ Increasing clarity has been brought in with regard to the role and responsibility fastened upon the custodian with the evolution of the guidelines from 1993 to 1998. It is made incumbent on the CFS/custodian to assume responsibility, not merely for duty liability on loss/pilferage of goods under transportation, but for the goods itself. Even if the appellant were to state that the 1993 guideline was unclear in this regard, the 1998 circular is crystal clear. The transaction in question occurred in 2004 when the aforesaid circular was in effect.

+ The very fact that a custodian is to be held responsible for loss of the goods means that the ultimate responsibility in relation to the contents of the container lies with it. This will include loss of the original goods by substitution which has happened under the watch of the CFS.

+ Custody is a dynamic process commencing with the receipt of cargo, movement of goods by the custodian and concluding with the presentation of shipping documents by the representative of the custodian at the gateway ports/airports and including all events in between. Any attempt to dilute the responsibility of the custodian in this sequence would clearly be contrary to the apparent intention. The custodian is, but one link in the chain of events relating to the movement of goods in the course of import and export. Accepting the argument of the appellant would weaken one link of the chain, thus compromising the entire network.

+ As a consequence the provisions of section 114 will stand automatically attracted in the event of violations by way of omission and commission of the acts stated therein.

The appeal is dismissed.

(See 2017-TIOL-757-HC-MAD-CUS)